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Special Department of Defense Briefing

Presenters: John Young, Assistant Secretary of the Navy for Research, Development and Acquisition, and Tom Laux, Program Executive Officer, Air ASW, Assault and Special Mission Programs
June 14, 2004 5:05 PM EDT

            MR. YOUNG:  Thank you for joining me today.  I'd like to make a brief statement and then take questions.

 

            We're here to mark an important event as the Navy moves forward to replace the U.S. Navy's fleet of aging P-3 Orions, which currently provide valuable strategic blue water and littoral undersea warfare capabilities, as well as fulfilling armed reconnaissance, intelligence and surveillance roles.

 

            McDonnell Douglas Corporation, a wholly owned subsidiary of the Boeing Company, has been selected as the prime contractor for the Multi-mission Maritime Aircraft -- or system development and demonstration phase.  The company is headquartered in Long Beach, California.  (Correction: McDonnell Douglas Corporation  is not headquartered in Long Beach, California.) 

 

            Today's MMA decision represents an important milestone for the warfighter and our acquisition team.  Our P-3 fleet has made major contributions to operations in Afghanistan and Iraq, while also performing their core maritime mission.  In many cases, we have put hours on these airframes, substantially times the normal monthly allotment.

 

            It's becoming urgent to replace the P-3 with a new airframe and the enhanced capability offered by MMA.  Both industry teams produced high-quality proposals, and the acquisition team has worked with industry to make a good decision on schedule.

 

            MMA offers a modern, highly reliable airframe that will be equipped with improved maritime surveillance and attack capability, allowing a smaller force to provide worldwide responsiveness while potentially on a smaller support infrastructure.  MMA will ensure the Navy's future capability in long-range maritime patrol.  It will be equipped with modern anti-submarine warfare (ASW); anti-surface warfare (ASuW); and Intelligence, Surveillance and Reconnaissance (ISR) sensors.  In short, MMA is a long-range ASW, ASuW, ISR aircraft that is capable of broad-area, maritime and littoral operations.

 

            MMA will use state-of-the-art simulation and training systems and implement performance-based logistics concepts.  It will be a key component in the Navy's Sea Power 21 Sea Shield concept by providing persistent ASW, anti-submarine warfare and anti-surface warfare capabilities and will support Sea Power 21 Sea Strike doctrine through provisions of intelligence, surveillance and reconnaissance and armament capabilities.  This platform will also play a key role in the Navy's Force Net architecture via development of the common undersea picture.

 

            These operational capabilities will be key factors in providing a sustained forward presence, sea domination and distributed and networked intelligence.  The MMA program's initial acquisition strategy calls for an initial operational capability in 2013.  It's characterized by a progressive, tightly integrated developmental and operational test approach and a strong emphasis on modeling, simulation and system integration laboratory tools used to offset flight test costs and the schedule burden of the program.

 

            As we proceed into the system development and demonstration phase, the program will focus on developing the system that will significantly transform how the Navy's maritime patrol and reconnaissance force will man, train, operate and deploy.

 

            The contractor for the system development and demonstration phase, as I noted, is the Boeing Corporation.  They will be awarded a 3 billion, eight hundred eighty-nine thousand dollar cost-plus-award-fee contract to develop the Navy's Multi-mission Maritime Aircraft.

 

            Joining me at the podium today is Tom Laux , as he mentioned, the program executive officer for AIR ASW, Assault And Special Mission Programs.  I'd like to thank Tom Laux and his wonderful team for the great and dedicated job they've done on this proposal. We received proposals in the December time frame initially and worked with industry to make sure we understood what they were proposing, as well as they understood what we wanted, so that we had the best-quality proposals possible, and used those proposals within the team to make the best possible source selection decision.

 

            Tom and I will now be happy to take any questions you might have.

 

 

            Q:     What's covered in the $3.8 billion contract?

 

            MR. YOUNG:  Tom, why don't you go ahead and outline that for them.

 

            MR. LAUX:  Okay.  Thank you.

 

            The system design and development contract covers the full range of developing what's required for the aircraft, including all of the onboard mission systems, the modifications to the airframe itself, all of the training systems, and all of the software laboratories that are required.  There's an extensive amount of software development, almost 2 million lines of code just for this application.  It covers developing all of the integrated logistics elements, including the trainers and the simulators and the courseware.  Essentially everything that's required to get ready to build the production aircraft which will be delivered to the fleet.

 

            Q:     So there's no airplane building in this -- in this --

 

            MR. LAUX:  Oh yes, ma'am.  We're building -- this contract calls for currently three aircraft, including -- the first aircraft will be a flying demonstrator only.  The second two aircraft will in fact be stuffed, as we call it, with the missions systems.  Beyond the $3.9 billion, we expect to build four more what we call stage two aircraft, which will be used to do the initial operational testing and evaluation.

 

            Q:     Are they covered under this contract, those four additional, or they are not?

 

            MR. LAUX:  They are not covered under this contract, but we have commitments from the prime contractor regarding the availability and the profit structure that govern these aircraft.

 

            Q:     When could that be ordered?

 

            MR. LAUX:  We're going to wait to see that we have successfully passed the design reviews.  We have a design readiness review in FY '07, and we expect upon successful completion of that review that we'll award the contract for the stage two aircraft at that point.

 

            Q:     In fiscal '07?

 

            MR. LAUX:  That's correct.

 

            Q:     Was this the low-cost solution?  And if not, why was it chosen?

 

            MR. YOUNG:  Let's see; I want to be careful here about discriminating between the proposals.  Both companies proposed costs and the government assessed those costs, essentially doing an independent cost assessment.  So we knew, consistent with my view, that we have to sign contracts where we know the costs when we sign the contract.  This government assessment of the costs in both proposal cases was slightly higher than what the companies proposed, and I believe the Boeing proposal, at least for the development phase, is slightly lower than the Lockheed proposal.  But that's not all -- this is a best value competition based on technical, management, past performance and other factors.  So that alone, was not a discriminating factor.

 

           

 

            Q:     Could you walk through the long-term production plans here? Boeing and others have talked about a potential $20 billion program. Could you expand for us a little bit? And how many aircraft, roughly?  Production value?

 

            MR. YOUNG: Tom and I talked about this in advance.  So we have a set of numbers we agreed to give you.  He mentioned the $3.9 billion value of the SDD contract to Boeing. The SDD phase of the program -- the program office estimates that that's roughly a $5.5 billion program in FY '04 dollars.

 

            The aircraft procurement section of the program is estimated to be a $20 billion effort.

 

            And then the total -- the life cycle cost, if you will -- I think that's (25 years is correct answer) years of life cycle support, as well as the aircraft -- is estimated to be about a $44 billion program.  Those numbers I gave you are FY '04 dollars, not -- so they'd have to be inflated to be then- year dollars.

 

            Q:     Forty-four billion (dollars) is inclusive, all-inclusive?

 

            MR. YOUNG:  That's the SDD, the aircraft procurement, and the operating and maintenance costs.

 

            Q:     For how many aircraft?

 

            MR. YOUNG:  The program objective currently is 108 aircraft.

 

            Q:     Including the development aircraft, or all of them?

 

            MR. YOUNG:  That's the procurement objective.  I don't think that includes the three SDD aircraft.

 

            MR. LAUX:  It does not.

 

            Q:     Or the four --

 

            MR. YOUNG:  And does the four option aircraft -- and does include the four option aircraft.

 

            Q:     So 108 operational aircraft. What would be the big production years, assuming this goes forward?

 

            MR. YOUNG:  I don't know that right off the top of my head.

 

            MR. LAUX:  We're looking for a full rate production decision in FY '13 at the latest.  We're trying to accelerate that, if possible.  And we expect to buy 34 what we call low-rate initial production aircraft.  And then we will transition beyond that in the year '13, to hit full-rate production.

 

            Q:     When would LRIP begin?

 

            MR. LAUX:  We're looking at LRIP in the years '10, '11 and '12.

 

            Q:     A long-range program is envisioned as two parts, you know, the manned aircraft and an unmanned system.  Are you all still looking at the unmanned portion of this thing, and is that going to go forward anytime soon?

 

            MR. YOUNG:  Yes, the current fleet of P-3 aircraft is 196 aircraft.  We're gradually bringing that number down, both because of the time that's being put on the P-3 fleet and our ability maintain them, as well as the anticipation of MMA.  You can see that's a smaller fleet size at 108 aircraft.  That reflects some great work that's been done between the acquisition team and the requirements community about what the Broad Area Maritime Surveillance system, or BAMS, anticipated to be an unmanned air vehicle which we're going to have a competition for.  There's an assessment about the persistent surveillance and coverage that BAMS will provide, and then the manned segment of this that augments that surveillance and provides additional armed capability and performs other missions, including littoral.  So the balance between those systems provides the full Navy maritime surveillance capability.  And yes, BAMS is proceeding on course in the budget.  We announced a while back, as you know, a competition for that system.

 

 

            Q:     These development programs are wont to stretch out rather than contract.  So I'm just sort of curious what head strategy you have to keep P-3s flying if the 737 doesn't in fact show up in time?

 

            MR. YOUNG:  Well, people may be able to comment further about that and get you more information.  The budget considers the time frame anticipated for MMA, and has laid in funds for P-3 maintenance, sustainment, and even some structural life modifications to extend the life of that fleet to the time at which we anticipate MMA coming into the force in numbers.

 

            The proposal provided by Boeing, offers the potential to leverage their obvious experience with the 737 airframe to get an MMA slightly sooner.  And the government has assessed, consistent with my discussion about knowing the cost and the  schedule of the program, the government assesses they may indeed be able to deliver a little sooner.  That, if it's realized, will provide a benefit to the Navy that's very helpful.  It might allow us to avoid some costs on that P-3 fleet sustainment. (Note: It was a factor) We evaluated the proposals equally on the technical merits.  But if they do achieve that early delivery, which they have claimed they can accomplish and the government's assessed they can accomplish a portion of that, that is a beneficial -- and also it mitigates some of the risk of the ability of the P-3 fleet to be sustained into the future.

 

            Q:     How much earlier?  I mean per Boeing.

 

            MR. YOUNG:  The government assessed that they may be able to make the schedule as much as a year early.  They assessed that they can do a little better than that.  We're going to sit down and have -- Tom and his team will have detailed discussions with them, but any early progress on the program is very beneficial to us from all perspectives.

 

            Q:     Did this also include replacing the EP-3, or is that entirely separate?

 

            MR. YOUNG:  The EP-3 current program of record anticipates the Navy partnering with the Army and using their Aerial Common Sensor program to deliver a Navy variant.  There's a great deal of overlap between ACS and the mission of the EP-3, and so right now that's our track for replacing the EP-3.

 

            Q:     How much did the maintenance and logistics aspect of Boeing having, you know, maintenance facilities all over the world for the 737 fleet influence your decision and real life-cycle costs?

 

            MR. YOUNG:  Actually, both companies I think I can say proposed performance-based logistics and a degree of contractor logistics support.  So Boeing's worldwide capability really wasn't a factor.  It's one of those after-the-fact factors because it wasn't laid out as a proposal evaluation criteria.  But now that we've made the decision we can sit down and understand what their worldwide support network may mean to operational availability.  We think that's a bonus.  We think that may provide another bonus to the Navy's own support infrastructure if we can make the right decisions about how we will rely on them worldwide.

 

            So we think it's a benefit.  It wasn't a factor discriminating the proposals because it wasn't part of our proposal criteria.

 

            Q:     Can you sketch out, just in broad terms, why you chose the Boeing proposal instead of the Lockheed proposal, and you're moving from -- you know, moving platforms; moving away from the incumbent producer?  Just very broad terms, you know, without prejudicing or without giving away any secrets?

 

            MR. YOUNG:  It's hard for us, and I don't think I'm very comfortable going too far down the road.  I will just talk in general terms and reiterate some of the things I said.

 

            I think we were able to assess very well in working with both companies what they could deliver.  We understand Boeing's plan to build the 737 using the existing line in the Seattle area and do the modifications there.  That was an adjustment in their proposal late in the game.  We think that significantly reduces the risk relative to other strategies that might have moved the aircraft around.  The potential for them, especially with the airframe in hand, to deliver on schedule or early just became a benefit in terms of that they understood their risk and we understood their risk and we could assess their technical management risks to be somewhat low.

 

            So those factors as well as the ability of both airplanes to meet our requirements, there was not a dramatic discrimination amongst those factors.  But Boeing had several features in terms of our confidence in their ability to manage and deliver in a timely way that helped tip the scales.

 

            I don't want to give you the wrong impression. The competition was very close, as I said, and the companies did an excellent job.  And we get proposals of that quality when Tom and the team have discussions with industry.  We've done this on JSF, DDX, all of our competitions. The companies understand what we want, we understand what they offer, and that makes for decisions that are close, and I think that's to the benefit of the taxpayer.

 

            Q:     You mentioned that the modifications are being done in Seattle and that was a late change in the game.  What was the original plan?

 

            MR. LAUX:  Initially Boeing was going to essentially take a 737 commercial aircraft and modify it into a naval variant, and that involved essentially remanufacturing the aircraft.  What Boeing has committed to do now, as they do on the commercial 737s, in parallel production lines, they will build the fuselage in Wichita;  they will take the fuselage to Renton, Washington; they will add the wings; the engines and the rest of the things that look like an airplane, and then they will fly it to Seattle to actually install the mission systems and do the checkout and the fly-off from that point.

 

            Q:     Of course these are very different aircraft.  We have a turbo-prop and a jet, very different performance.  But you're saying that that had nothing to do with, you know, the real discriminating reasons for choosing Boeing over Lockheed?

 

            MR. YOUNG:  In the end, both proposals met the requirements to the minimum degree and to varying degrees.  And so I can't tell you that either was discriminated based on, in the end, meeting the requirements.

 

            Q:     Follow-up on the ACS program.  You had bumped that out a bit.  Do you now have a firm date in mind for when you're going to make that contract award?

 

            MR. YOUNG:  The Army's the lead on that, so I'm not prepared to comment on that right now.  It's pending, or there may have been a recent DAB decision.  So the progress is being made on that program, and we'll have further details on that in the future.

 

            Q:     Can you explain to the taxpayer why the Navy needs a $44 billion program to go after diesel submarines?  The Soviet Union doesn't exist anymore, as we were reminded all last week.  Why do we need this program to go after what a lot of people think are low-tech diesel submarines?

 

            MR. YOUNG:  Couple issues.  One, the planes that are flying today and being called upon, as I said, by a factor of three or four times their normal monthly allocation of hours to do both maritime and littoral work, is 26 years old.  The P-3 fleet's average age today is 26 years.  So there's clear demand for the mission and a need to replace it.  In the press notes here, and I may get it wrong, but there's something on the order of 40 countries, I think, operating diesel submarines.  That may be high.  Or maybe it's 40 submarines. Maybe I'll try to get you that.

 

            MR. LAUX:  Four hundred submarines, possibly, worldwide.

 

            MR. YOUNG:  We'll -- do you know this from this?

 

            MR. LAUX:  Yes, sir.

 

            MR. YOUNG:  Give him the details.  Go ahead.

 

            MR. LAUX:  Four hundred submarines around the world. Obviously geography -- three-quarters of the earth covered with water. This continues to be a very serious threat, and currently the P-3, and in the future the MMA, is clearly the best platform for doing wide- area search and doing the localization required to track the diesel submarine.  Today's modern diesel is a very, very challenging threat and this is the best platform available to prosecute that threat.

 

            MR. YOUNG:  Can I add -- I was right.  The press announcement notes that there's 40 countries operating over 400 total submarines today, which approximately are assessed to be -- 75 percent of those are assessed to be  modern submarines.  That poses a very challenging threat for the Navy, up to and including, as you may know, that the CNO has created Task Force ASW. That threat is daunting in our war plans and it requires a response.

 

            MMA doesn't just respond to those submarines, it also responds to surface threats.  Increasingly, as you well know, in the global war on terrorism we find an important need to track vessels, be aware of the content of vessels, and pursue them.  And the mission that's probably significantly increased the demand on P-3s is this surveillance and being able to do surveillance work in the littoral.  So it's a multi- spectrum mission to both prosecute the surface threats, the undersea submarine threat, as well as contribute to the battle-space picture, including over- land surveillance and visibility.

 

            Yes, sir?

 

            Q:     I'm curious, is there any sensor reuse from the AIP aircraft?  And what would you characterize as the highest technical risk going into the program?

 

            MR. LAUX:  It will include a comparable sensor suite. There is no lift or cross-deck, if you will, of any of the existing sensors onboard.  We're looking at an upgraded radar, looking at upgraded ESM, looking at upgraded missile warning, looking at upgraded magnetic anomaly detection.

 

            In terms of the technical risk, it's not so much the technologies that particularly are of concern, and where we're going to set up the award fee plan to make sure, it really is the integration and getting the mission systems to work together.  This is a very significant step forward in what we call an open architecture-- to make sure that any of these sensors can play with the current suite, and then, as future technologies evolve, they can be plugged in to the open architecture backbone without requiring an extensive amount of redesign.  It will be a relatively straightforward plug-in.

 

            Q:     How do you define IOC right now?

 

            MR. LAUX:  In '13 we're looking for a detachment to deploy. So we will have been through the initial training squadron, and we'll actually have aircraft ready to be forward-deployed, which of course is the primary mission of the MMA aircraft.

 

            Q:     Does that include FRS?

 

            MR. LAUX:  That's correct.

 

            Q:     And do you have a decision on what the designation is going to be?  We had tried the P-7; that died some time ago.  Is this going to be the P-8-1/2 or --

 

            MR. LAUX:  (Chuckles.)  No.

 

            Q:     No definitive --

 

            MR. YOUNG:  News in the future.

 

            Q:     And are there contract incentives for Boeing to deliver on this early?  You talked about you have confidence in them to -- do you think they can deliver a year early?  They think they can do it better?  Are there -- what are the contract incentives?

 

            MR. YOUNG:  Well, the contract lays out -- and Tom may add -- consistent with what we're doing across the Navy, the contract identifies some of the key discrete events in the program and assigns award fee money, and then, within that award fee money, it assigns or grades their technical, their cost, their schedule --

 

            MR. LAUX:  Management.

 

            MR. YOUNG:  -- management, performance on each of those pieces.

 

            So we both know, going in, what they have to do to earn the fee. And as Tom will tell you, I tried to be much less subjective and much more quantitative and discrete about people's opportunity to earn. And clearly delivering a quality product and doing so ahead of schedule will help them earn all those incentives.  It's early, but not -- quality, obviously, is not -- so we've got a balanced approach in incentives.  We don't want to -- the team's done a good job of not incentivizing bad behavior.  We don't want just schedule.  We have to accomplish what he said, and that's an open architecture where things can easily be plug-and-played between systems and the system can plug into the FORCEnet architecture we envision.  And then they have to hold costs; they can't deliver early just, you know, at a higher cost.

 

            So I think the incentive package is very balanced.

 

            Q:     Is there a total figure for the amount of incentives in this contract?

 

            MR. YOUNG:  Yes, there's -- I'm thinking through -- I'll let Tom come in.

 

            MR. LAUX:  Okay.  Within the SDD contract is $314 million, which is 12 percent of the fee-bearing work in the contract.

 

            Q:     So 314 (million dollars) in incentives, all totaled?

 

            MR. LAUX:  All told.  That's correct.

 

            Q:     Two unrelated.  One, does the system have a Direct Infrared Counter Measures (DIRCM) system?

 

            And then, two, in addition to incentive, do you have an actual penalties built in for failure to perform at any area?

 

            MR. YOUNG:  Tom may expand.

 

            DIRCM is not baseline to the system right now (Correction: DIRCM is baseline to the Electronic Warfare Self Protection (EWSP) system right now).  And the scoring process on the incentives is a little bit like grades in school, if you will.  And so there's a point where you can still do a 50 percent job but get no fee.  You need to be in the band of reasonable performance to begin to earn increasingly higher percentages of the fee.

 

            Q:     But there's nothing in there that says if you don't give us this and this by CDR, let's say, you will actually owe us $10 million?

 

            MR. YOUNG:  No.

 

            Q:     Okay.

 

            MR. YOUNG:  I mean, at the end of the day, our goal here is to get the product, especially in light of the age of the P-3 fleet.  And there's an opportunity to take fee they don't earn and roll it forward.  That would be at the discretion of Tom and his team because we want to identify the critical events that deliver the product, put incentives on them, and hopefully have the company earn them because at the end of the day the war fighter needs the product.

 

            Q:     I'm sorry.  The 314 (million dollars) of incentives, is that beyond the 3.89 billion (dollars) value of the contract?

 

            MR. YOUNG:  It's in that total.  It's within that total.

 

            Q:     So it's worth up to 3.89 billion (dollars), but not necessarily?

 

            MR. YOUNG:  True statement.

 

            Q:     In selecting a jet aircraft for this, does that in any way influence how you look at the requirements for the UAV?

 

            MR. YOUNG:  Tom, do you have anything?

 

            MR. LAUX:  I wouldn't -- not that I know of.

 

            MR. YOUNG:  Yeah, I mean we had fundamental, you know, range and coverage requirements.  Both platforms met that.  And then the requirements are slightly different, more in persistence terms, for the UAV.  They compliment each other in terms of persistence on station, and  this plane has the ability to get on station.

 

            Q:     Can I just follow?

 

            MR. YOUNG:  With range.

 

            Q:     It's actually kind of a logical question, but now that you know what the product is -- I mean, when you wrote the BAMS requirements, you were kind of operating in a vacuum on MMA.  Now you have data for what MMA will do.  Would you expect the BAMS' ORD to be scrubbed, to be a better match for MMA?

 

            MR. YOUNG:  I think other people do a better job with this. I'll offer you comments, though.

 

            The BAMS' requirement is a persistent ability to cover large sections in an unmanned way, which is potentially more affordable.  So it's a requirement tailored to time on station.  Get a distance and stay on station.

 

            This is a requirement that says the manned aircraft needs the legs to get to a point, potentially enhance that coverage but also have the ability to put weapons or sensors on what hopefully is a more localized track.  You could envision a BAMS that's covering a large area handing a track to an MMA.  You could equally envision MMA handing a track, or creating its own track, but you have to go through a warfighting analysis to see.  And I don't think, as long as you met the core requirements of being able to get on station and carry the weapons and the sonobuoys, the plane really -- I think that's the quality of the requirement.  This won't dramatically change the MMA -- I mean the BAMS decision space.

 

 

            Q:     Sir, I just want to make sure that I understand this correctly.  When you say that Boeing has, you know, suggested that they could possibly accelerate their work on the aircraft and move it up by the government's estimation of a year --

 

            MR. YOUNG:  Well, I think, to be accurate, they proposed to do the work on their schedule, which is an accelerated schedule.  And the government assesses that they cannot achieve everything they propose but can achieve most of it.

 

            Q:     Okay.  Does that refer to low-rate initial production? Does it refer to the production of the first demonstrator aircraft, the first of – the three?

 

            MR. YOUNG:  Let me let Tom be more precise.

 

            MR. LAUX:  Essentially, they proposed to do the work that we asked to be done by the year '13 by the end of the year '12.

 

            Q:     That's the stage two, that's the IOC.

 

            MR. LAUX:  That's all of the stage two aircraft and including the LRIP aircraft that we will ordering at that point as well.

 

            Q:     And just one other point for clarification.  The difference between the $3.9 billion that's in this contract award and the $5.5 billion is roughly the cost of an additional aircraft in stage two, right?

 

            MR. YOUNG:  Well, it reflects the fact that once you -- as Tom and his team has to perform government oversight, then the MMA has to be tested and subsystems in a variety of government test facilities in the system itself and tested in the hands of operators.  Those add cost increments for the government's performance of its portion and for the testing of the aircraft and the test team that will do that testing.

 

            Q:     At what point in the program do you move from simulation testing to real testing?

 

            MR. LAUX:  We're looking for a first flight in the year '09.  I'm not sure if that's exactly the question you asked.  But --

 

            Q:     Is that the first flight test, in '09?

 

            MR. LAUX:  Yeah.  The first aircraft will be delivered for flight test in the year '09.  We will be doing simulation testing, including hardware/software laboratory testing for the mission equipment in the back end of the aircraft almost from day one of the contract.

 

            Q:     That's not operational testing, though, the '09?

 

            MR. LAUX:  No, no.  The first flight is in the year '09. And we will actually take this thing, we'll do the first operational testing in the year '10.  And we'll do what we call the full operational testing the following year.

 

            Q:     What's the expected lifetime of the program?

 

            MR. LAUX:  I believe we used a 25-year service life.

 

            Q:     And what is the P-3 at, about 36 --

 

            MR. YOUNG:  The average age of the fleet right now is 26 years. We're going to retire, I think, some of the older aircraft.  But it's clearly headed, by the time we're replacing it in quantity with MMA, into the 30-year-plus time frame.

 

            Q:     Projected unit cost of the plane?

 

            MR. YOUNG:  I have one of those.  Do you have it?

 

            MR. LAUX:  Yeah.  We're looking at what we call the average recurring flyaway as being $126 million.  And that's in FY '04 dollars.  We do everything in constant numbers so we can fairly evaluate.

 

            Q:     That's the flyaway.  What's the program acquisition unit cost?

 

            MR. LAUX:  If you include all the development, all that kind of stuff, add in -- take the total program divided by the number of aircraft, it nets out to around $190 million.

 

            Q:     And for Mr. Young, what gives the Navy confidence you can afford this program in the long term when you've got V-22, DDX, LCS, Virginia class -- you know the alphabet soup of programs.

 

            MR. YOUNG:  I think the department continually -- you know, we're working '06 through '11 right now, so you can see out through '11 with what they call good granularity.  The department continues to work to constrain its operations and maintenance and its military personnel costs to the right level so the force is ready.  That's the CNO's top priority.  The Navy is the only department, I think, that's actually taking some force structure down.  It feels like they're sizing the force to where the CNO is comfortable.

 

            Those decisions, and then some things we're doing in Sea Enterprise to change our business practices, bring to bear tools like ERP; our NMCI, Navy-Marine Corps Internet, and the Enterprise Resource Program, helping us to manage our supply chain, that's yielding efficiency.  So through our program you see a gradual increase, in some cases a substantial, in funds allocated to procurement that gives us the potential to pay for DDX -- all the systems you listed.

 

            So the program, with good granularity, through 2011 we see lets us afford the assets we need.

 

            In some cases, too, as you know, like DD(X) -- and this airplane, for example, has a crew of nine.  P-3s have a crew of 11.  DD(X) we have a substantial reduction.  So across the enterprise, we're making conscious choices about sizing our assets and the manpower needs, so that we can control our operating costs going forward.

 

            Q:     Is there an expectation that by FY '13 you're going to see the size of the existing P-3 force shrink due to age, by a significant number?

 

            MR. YOUNG:  I think, over the next few years, the force is headed to 148.  But our understanding is, 148's kind of a near minimum number that the combatant commanders are requiring.  Hence, we've laid in substantial funds, in the several hundred million-dollar range, to do structural service life extension and structural work to keep the P-3s at that level and supporting the combatant commanders.

 

            Q:     And do you need any MILCON dollars for hangars or any new infrastructure for a new fleet like this?

 

            MR. LAUX:  Yeah, there's about $100 million of MILCON.  The 737-800 ERX, as Boeing calls its aircraft, is a bit larger than the existing P-3.  And so we're going to have to make some local modifications to our existing hangar space to accommodate.  Obviously, $100 million is not a -- given the four major operating sites, it's a fairly modest amount.

 

            Q:     Do you see a foreign market for Boeing for these plans they've talked about, you know, potentially?  And is it something that you feel that the U.S. government would approve for export?

 

            MR. YOUNG:  I think we're anxious to have those discussions. There's something on the order of 225 P-3 type aircraft in 15 countries.  We've had, you know, certainly informal discussions with several partners who are interested.  We're handling the program a little like Joint Strike Fighter.  We have the potential to have level one partners.  And I think, now that we've made a source selection decision, we expect those discussions to intensify, because it will be important for the partners to join the program in these early stages, when we have a chance to give their best athletes a chance to compete for work opportunities on MMA.

 

            But there's a great interest in both people that currently have P-3s and then countries where they're not -- they're using other than  P-3s but have recognized both the diesel threat and the increasing need to have ship tracking capability for these maritime threats, and especially in littoral waters, where there's a variety of operations that could be related to the war on terrorism.  So the interest level has been pretty high from international countries.

 

            Q:     Can you name some of the partners?

 

            MR. YOUNG:  I'd rather not.  You know, we want to have those discussions proceed without prejudice.  I certainly, again, point to the countries that now operate P-3s --

 

            Q:     (Off mike.)

 

            MR. YOUNG:  Canada, Australia, New Zealand, the Netherlands, Norway, Japan, Brazil, Pakistan, Thailand, South Korea, Greece, Spain, Argentina, Chile and Portugal.  And then there are other countries I can show you that aren't on that list that are interested in talking with us.

 

            Q:     On that point, now that it's the Boeing mission suite, any discussion with the Brits yet?

 

            MR. YOUNG:  We are aware -- Tom may offer more.  I mean, there's a benefit in the collaboration that's going on at the subcontractor level, if you will, between what's common between the U.K.'s work and what will be common with MMA.  We've not gone far beyond those discussions, but the door is now open with the source selection to have more discussion.

 

            MR. LAUX:  Boeing offered us a substantial amount of lift or re-use of the development work that they had done, and that was included in the Boeing proposal.  There have to date not yet been any government-to-government discussions, although obviously the door is open to pursue that.

 

            Q:     Another clarification question.  The $314 million in incentives that you talked about, are those built in to this 3.8 -- 3.9 billion?  So it’s 3.9 billion-- not plus but including this?

 

 

            MR. YOUNG:  (Nodded Yes to question)  Hopefully we've answered all your questions, and if it's okay with you, we'll call it a day.

 

            MR. LAUX:  Thanks very much.  Thanks again very much for you all's attention.    

 

 

 

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